Accountants calculate an asset's pro-rata depreciation during the first and final year of its service. The IRS established applicable convention for pro-rata asset depreciation, which represents an assumption about the date when the property is placed into service or retired. While the half-year convention is the preferred method, other conventions such as the mid-month and mid-quarter conventions are allowed under certain circumstances.

In the asset's first year, the half-year convention produces higher depreciation expense compared to the mid-month or mid-quarter conventions if the asset is purchased at the end of the year. Likewise, the mid-quarter convention produces higher depreciation expense compared to the mid-month convention if the asset is purchased at the end of the quarter. These relationships reverse in the final year of asset service. Applicable conventions affect only the timing of depreciation expense; all three methods result in the same total depreciation throughout the asset's useful life.

Consider an asset the company purchased on Sept. 20, 2014, at the price of $6,000 with five years of useful life depreciated under the straight-line method. The company has a fiscal year ending Dec. 31. The annual depreciation expense is $1,200, quarterly depreciation is $300 and the monthly depreciation is $100.

Under the half-year convention, the asset is considered to be placed in service on July 1, 2014, and the applicable depreciation expense for 2014 is calculated as $1,200 * 0.5 = $600. Under the mid-quarter convention, the asset is considered to be placed in the middle of the third quarter in 2014 and the applicable depreciation expense is $300 + $300 * 0.5 = $450. Under the mid-month convention, the depreciation expense in 2014 is $100 * 3 + $100 * 0.5 = $350.

In the period from 2015 to 2018, the depreciation expense under all three methods is $1,200. In 2019, the depreciation expense under the mid-year convention is $600; under the mid-quarter convention, it is $750; and under the mid-month method, it is $850.